Why we dedicated our entire Dec/Jan issue to climate change

It would’ve been nice if Glasgow’s recent COP26 summit had ended with a definitive pathway to mitigating the worst effects of climate change. Whether you think the summit was a paean to the power of incrementalism or just “blah, blah, blah”, we haven’t really met anyone who thinks the job is anywhere near done.

So, as we brace ourselves for a few more nerve-wrecking rounds in the last chance saloon, we wanted to put the spotlight firmly on our changing planet. That’s why we’ve dedicated our entire December/January issue, our last of the year, to covering the intersection of infrastructure and climate change. And we mean that literally: there isn’t a single article in the magazine that isn’t dedicated to this topic.

With plenty of coverage throughout the year and two special reports dedicated to the energy transition and sustainable investing, you might be wondering what else is left to talk about. But while those topics are, of course, intertwined with climate change – and in the energy transition’s case, crucial to fighting it – they tend to broach a different side of the climate story, one more focused on the opportunities it creates.

With Climate Action Tracker estimating the world is on track to heat up by 2.4C, nearly a full degree above the 1.5C scenario called for by the Paris Agreement, we wanted to mainly talk about how the asset class will fare in this drastically changed world; specifically, how built infrastructure stands to be affected by climate change – and the consequences for its owners – as well as what needs to change as we build infrastructure for a significantly more hostile planet.

At the heart of the former are questions of adaptation and resiliency. No point in naming and shaming but suffice to say that when we tried discussing those questions with the industry at large we were mostly met with… silence.

“How many of the top 10 infrastructure managers in the world today have done an assessment and an evaluation of the engineering risks posed by a 2.7C rise in global temperatures? I speculate the number would be low,” Climate Adaptive Infrastructure managing partner Bill Green, the former chief executive of Macquarie Infrastructure Corporation Renewable Energy Holdings, told us.

In a recent report, advisory firm Pollination warned that “both the private and public sectors are only just beginning to come to terms with the scale of change and risk implied by our scientific understanding of climate change”. It lends further credence to another of Green’s statements: “We are building infrastructure today for a planet that no longer exists. It’s terrifying.”

What’s equally terrifying is that those few firms that have taken the lead in pricing in physical climate risk have found themselves castigated for it.

Willis Towers Watson’s Carlos Sanchez, who’s also executive director of the Coalition for Climate Resilient Investment, a private sector-led initiative, offered a revealing example: “We have members of the Coalition who come to us and say: ‘It’s not that we don’t have the analytics to integrate. It’s not that we don’t recognise physical climate risk. It’s that we are penalised for it.’”

They are penalised by being shut out of competitive processes, Sanchez explained, having added the necessary capex to their models. “Such delta capex is not properly compensated in NPV terms, nor in terms of more likely cashflows, via either low cost of capital or other channels. For me, that’s a tragedy.”

That’s an example of an important discussion taking place on this issue. There are many others, from building in harmony with nature to the importance of waste to energy in slashing methane emissions (which got some long-overdue recognition at COP26).

We hope you dive in, starting here.